January 28, 2020

Q&A: 30 years of investing in technology

When Paul Wick took over managing Columbia Seligman Communications and Information Fund in 1990, Motorola had just introduced its flip phone and Apple had recently rolled out its beige box Mac Classic personal computer. Thirty years later, he’s witnessed revolutionary changes in the tech industry and used his encyclopedic knowledge of the sector to capitalize on long-term trends and sidestep gimmicks.

We asked Paul to take a moment to reflect on his achievements over the past three decades and discuss his thoughts on the direction of the tech industry in the coming years.

Q. What were some of the game changers you’ve seen over your tenure running the fund?

A: The introduction of the personal computer in the late 80s/early 90s was akin to what we’ve seen more recently in smartphones. This was followed by the trend of networking PCs together. Data networking became a new category, and that gave rise to client server computing — software loaded into a central server and accessed via networks. Netscape’s IPO in 1995 helped broaden the public’s access to web browsers, which

For three decades, Paul Wick had a front row seat in the evolution of the tech industry. He shares what he’s learned and what the future might hold in the sector.

Paul WickHead of the Seligman Technology Group

propelled widespread access to the internet. In more recent years, we’ve experienced the smartphone/mobility revolution, along with cloud-based computing. Every advancement required faster, more powerful, less power-hungry and smaller integrated circuits.

Q: What are some of the most important lessons you’ve learned over your tenure as an investor in the technology sector?

A: Being successful in tech is not just about being first to the next big thing.It’s more important to find long-term trends with legs. The PC trend, the networking trend and the smartphone trend are all long-term drivers that unfold over many years. Everyone remembers an IPO like Google’s and the stories of stocks that go straight up, but the much more common pattern is for companies to flame out after their IPO. It can take a year or more to understand if a trend is going to accelerate and dominate — and to understand the players in that space.

It’s important to recognize when accepted wisdom is no longer relevant.As industries mature, the dynamics change. There used to be a rule that any time the semiconductor industry saw year-over-year revenue growth above 40%, or saw unit growth in excess of 25%, the industry would go into recession within six months. These numbers made sense when the PC market was driving 65% of semiconductor demand, and every chip company had its own fabrication plant and added capacity or hit the brakes at the same time. Now, with dedicated foundries dominating production, capacity adds are more granular and cyclicality has diminished. It’s unlikely that we’ll see the types of unit growth or revenue numbers that we had in the early days. Understanding these new dynamics is much more important than trying to apply the old rule. There are similar absolutes in other industries that have become less reliable as the world changed.

Business models matter.We have always been suspicious of high-risk business models, such as one-product companies. We focus on finding companies with strong intellectual property, a sticky customer base and pricing power. We want to see recurring revenue and free cash flow generation.

Assemble a team that balances investing skill with technical know-how.The members of the fund’s management team have all been investing in the sector for 15 years or more, but many of them also have roots in the tech industry, working in computer software or as semiconductor engineers. They know electronics. They understand the architecture of smartphones and the process development aspects of fabricating semis. Their background allows them to understand which companies will benefit from a new development in semi manufacturing, for example. We believe it’s a significant advantage.

Q: What are some of the trends you’re keeping an eye on in the technology sector?

A: The key trend is the intersection of the cloud with software applications, mobile devices and the Internet of Things. There’s a virtuous circle at work here — faster data networks and cellular speeds enable the cloud to deliver faster search queries and streaming video speeds. Software integration advances enable new cloud services like ride-hailing services and food delivery. Cloud-based software improves security and ensures that applications are always up-to-date. And more powerful sensors and processors increase the intelligence of the cloud and edge devices like industrial machinery, home security cameras and automobiles.

Of course, there are other trends that are also exciting, such as advances in autonomous driving and the trend toward electric cars. We’re also keeping a close eye on fuel cell

technology and its potential to reduce pollution and carbon emissions.

I come at this as an investor rather than a technologist. I took one computer science class as a college freshman and didn’t enjoy it very much. In contrast, managing the fund all these years has been both an exciting challenge and great fun. It’s hard to believe all of the change that has happened in the past 30 years.

Investors should consider the investment objectives, risks, charges and expenses of a mutual fund carefully before investing. For a free prospectus or a summary prospectus, which contains this and other important information about the funds, visit www.columbiathreadneedleus.com/investor/. Read the prospectus carefully before investing.

Investment risks — Market risk may affect a single issuer, sector of the economy, industry or the market as a whole. The products of technology companies may be subject to severe competition and rapid obsolescence, and technology stocks may be subject to greater price fluctuations. Foreign investments subject the fund to risks, including political, economic, market, social and others within a particular country, as well as to currency instabilities and less stringent financial and accounting standards generally applicable to U.S. issuers. As a non-diversified fund, fewer investments could have a greater effect on performance.

Securities discussed are intended for illustrative purposes only, may not be representative of current portfolio holdings and should not be construed as a recommendation to purchase or sell specific securities.

The S&P 500 Index tracks the performance of 500 widely held, large-capitalization U.S. stocks. It is not possible to invest directly in an index.

Past performance is not a guarantee of future results.

Securities products offered through Columbia Management Investment Distributors, Inc., member FINRA. Advisory services provided by Columbia Management Investment Advisers, LLC.

Columbia Threadneedle Investments (Columbia Threadneedle) is the global brand name of the Columbia and Threadneedle group of companies.

The views expressed are as of the date given, may change as market or other conditions change and may differ from views expressed by other Columbia Management Investment Advisers, LLC (CMIA) associates or affiliates. Actual investments or investment decisions made by CMIA and its affiliates, whether for its own account or on behalf of clients, may not necessarily reflect the views expressed. This information is not intended to provide investment advice and does not take into consideration individual investor circumstances. Investment decisions should always be made based on an investor’s specific financial needs, objectives, goals, time horizon and risk tolerance. Asset classes described may not be suitable for all investors. Past performance does not guarantee future results, and no forecast should be considered a guarantee either. Since economic and market conditions change frequently, there can be no assurance that the trends described here will continue or that any forecasts are accurate.

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